Financial Cocktail Samosas: Bitesized money morsels for YOU, 03/09/2020

Financial Cocktail Samosas_ Bitesized money morsels for YOU, 03_09_2020

Mutual funds – truly a tax efficient investment avenue

A rupee saved is a rupee earned; that’s why, it is very important to choose a tax efficient instrument while making an investment decision to enhance your returns. Mutual fund (MF) schemes are one such investment products which are very tax efficient compared to other investment avenues. Basic Fact – unlike other safe investment avenues, there is any tax payable in MFs only if you sell. If you don’t sell anything, there is no taxation forever.

In case of equity MFs, profits from units held for more than One year are considered as long-term capital gains (LTCG) and are taxed at a super-cool 10% rate. Additionally, the first Rs 1 Lakh of profit each year which is LTCG (ie, held for more than a year) is exempt from tax. Short term capital gains (STCG) on equity MFs units held for One year or less are also taxed at a concessional flat rate of 15%.

In Debt MFs, profits from units held for more than 3 years are considered as long-term capital gains (LTCG). They are taxed at a concessional 20% tax rate (even if you are in 30% tax slab) after providing for indexation. For those who are not aware of indexation, it is a calculation which effectively brings down your tax taking into account the effect of inflation over time into your cost price. Profit on sale of Debt MFs before 3 years is counted as STCGs and is taxed as per your income tax slab.

Always opt for Cashless facility in health insurance policies

Having a health insurance policy is a must, more so in the current pandemic, for those who do not have the benefit of an employer provided health facility, like in the armed forces. The cashless facility, where your insurer settles your medical bills directly with your healthcare provider, is certainly a big boon. At the time of a medical emergency, making arrangements of funds would be the last thing you should be compelled to do. For most of the people, it becomes very difficult to arrange large amount of funds in a short span of time.

Cashless facility is typically available only at ‘network hospitals’, ie, those hospitals where insurance companies have a tie-up. You don’t have to worry about how to make payment of bills if you are admitted to one such network hospital since the insurer will directly settle the bill with the hospital. This is why, while buying a health insurance policy, take the list of network hospitals from the insurer and make sure that the hospital near your home or a good hospital in your vicinity or town is on that list.

Second installment of advance tax is due on 15 September 2020

If you have incomes other than salary, this is for you.

Typically, employers deduct tax on your salary as per the tax slab, but if you have other sources of income like interest, dividend, rent, capital gains and so on, you may have to pay advance tax on these incomes. If you have a pension, do check whether your bank is deducting the requisite tax on it; otherwise you may also be required to pay advance tax on the balance tax amount.

Advance tax liability for an individual taxpayer occurs when tax on expected annual income exceeds Rs 10,000. One has to pay advance tax installments in four installments every year. The first installment date was 15 June, by when one had to pay 15% of the estimated tax liability. The second installment which is now approaching, due on 15 September, by when 45% of the tax liability has to be paid. The next dates are 15 December and 15 March, by when 75% and 100% of the respective total tax liability for the financial year should be paid. So, hurry up, you have just a few days left to comply with the rule for second installment.

order here